Taxpayers’ £500m keeps rail on track

TRAIN operating companies that have seen revenue hit by the economic downturn are receiving nearly £500 million in taxpayer-funded support.

The main beneficiary of the so-called “revenue support” is First Great Western []

The main beneficiary of the so-called “revenue support” is First Great Western, which received £209.4 million for 2011 to 2012. The franchise, which runs from London to the West Country, is run by FirstGroup.

According to a parliamentary written answer, other franchises that have needed support include Virgin Trains’ West Coast Mainline, which received £44 million.

CrossCountry Trains’ franchise was given £18.5 million of taxpayers’ money in the same year while Stagecoach South Western Trains received £85.4 million.

Under the current franchising structure, train operators share revenue risk with the Government in return for a prescribed service level.

This is referred to as revenue support or revenue share, or sometimes as “cap and collar”.

Revenue share or support is triggered if passenger revenue rises above or falls below a certain predicted threshold.

According to a parliamentary written answer, other franchises that have needed support include Virgin Trains’ West Coast Mainline, which received £44 million

This threshold is set out at the start of the franchise and does not tend to start from day one.

In the case of the failed National Express franchise on the East Coast Mainline, there was no cap and collar to come in for the first five years so the operator’s revenue was hit hard by the recession and it ended up handing in the keys to the franchise. It is now run by state-backed Directly Operated Railways.

A Department for Transport spokesman said: “The First Great Western franchise receives revenue support which helps it to meet costs of running services. Under the franchising system, fare payers and taxpayers share the cost of running the railway but the Government is determined to drive down costs through greater efficiency, which will benefit both passengers and taxpayers.”

Franchising has been in the spotlight since plans to award the West Coast Mainline to FirstGroup foundered due to serious flaws in the process run by the DfT.

Sam Laidlaw, Centrica’s chief executive, is investigating the matter for the Government and is due to report his findings by the end of this month.

Virgin Trains, which ran the West Coast for 15 years, is negotiating terms of a contract extension from early December. After that point, the bid process will be re-run.

Tuesday sees the second estimate of national output in the third quarter, which will indicate the scale of the fledgling economic recovery.